Job Market Paper


Empirical analyses of the 2001 and 2008 stimulus checks find strong effects on consumption on impact, but are unable to identify longer-run effects despite suggestive empirical evidence of long-run effects. This paper investigates the long-term trends of these economic stimulus payments, focusing in particular on how these trends vary across households with different levels of wealth. I develop a model with a liquid-illiquid asset choice and am the first to reproduce moments from the distribution of marginal propensities to consume in the United States during a fiscal stimulus which are directly estimated from data.

Using this model, I show that the long-run effects of these fiscal stimuli are approximately twice that of the change in consumption on impact date. Furthermore, both in the model and data results, I show that while the consumption of hand-to-mouth households are statistically higher than that of otherwise similar households, I do not find evidence that the wealthy hand-to-mouth similarly drive aggregate consumption. This evidence suggests that the effects of fiscal stimuli have thus far been understated, and the relative importance of the wealthy hand-to-mouth conversely overstated.

Future Work

Joint work with Rohan Shah

We show how much of the thickness of the right tail of wealth is due to different returns on savings. In particular, wealthy people have access to a wider range of potential assets in which they can invest. These include assets such as individual stocks, exchange-traded funds, etc. These assets provide higher, albeit riskier, returns than those assets available to less wealthy individuals such as savings accounts. Our model thus features a distribution of households which have access to a randomly-drawn risky asset each period, each with a different returns profile. Given their draws, each household then chooses how much to invest in that risky asset as well as a safe one-period bond in an incomplete market setting.  This novel framework provides unique insight into wealth inequality due to this continuum of assets available to households. As wealthy households are able to take on more risk, they are more likely to invest even if they draw a very risky asset this period. Poor households, on the other hand, are unwilling to take on the risk associated with the risky asset and so invest more in the low-return safe asset. Then, if the risky asset pays off, this yields large profits predominantly for wealthy households and thus drives additional inequality.

Joint work with Mohsen Mohaghegh

We explore how the response rate of monetary policy affects the distribution of wealth in the United States. Empirical evidence, though somewhat disputed, suggests that conventional monetary policy increases inequality. This is especially true if it leads to a significant rise in the inflation rate.  However, the impacts of unconventional monetary policies on inequality have not been extensively studied.  There are two justifications for our research. First, there is growing empirical evidence that monetary policy has different impacts on aggregates in low-rate versus high-rate regimes. This happens mainly because direct purchases of assets by the monetary authority create a price shock which is favorable shock for only a subset of the population. We study these impacts in a general equilibrium setting with a profit-maximizing banking sector, two assets, and an unexpected monetary shock that targets only one asset class. We are interested in quantifying how much these regime shifts and their resulting endogenously determined price shocks contribute to rising inequality. 

Published by B. Vanessa Ordoñez

Economics PhD candidate at the Ohio State University specializing in monetary policy and wealth heterogeneity. President & Founder of Graduate Women in Economics